Michael Winship: Goldman Sachs: What hath fraud wrought?

Friday

Apr 30, 2010 at 12:01 AM

Goldman Sachs is the Blackwater of finance, the latest in a long line of companies you love to hate, like AIG and the Dallas Cowboys. Hit “refresh” on any financial news website and you’ll likely get yet another revelation of the firm’s colossal and impressively varied shenanigans.

Michael Winship

Goldman Sachs is the Blackwater of finance, the latest in a long line of companies you love to hate, like AIG and the Dallas Cowboys.

Hit “refresh” on any financial news website and you’ll likely get yet another revelation of the firm’s colossal and impressively varied shenanigans. Susan Pulliam recently reported on the front page of The Wall Street Journal that, “A Goldman Sachs Group Inc. director tipped off a hedge-fund billionaire about a $5 billion investment in Goldman by Warren Buffett’s Berkshire Hathaway Inc. before a public announcement of the deal at the height of the 2008 financial crisis, a person close to the situation says.”

As the Journal notes, the Buffet deal came at a key point in the Wall Street collapse, restoring confidence in the markets and lifting Goldman’s stock from a 40 percent slide to a 45 percent surge. The hedge-fund billionaire in question is Raj Rajaratnam, whose Galleon Group currently is embroiled in one of the biggest insider trading scandals in history.

This comes, of course, just after the Securities and Exchange Commission charged Goldman Sachs with committing a highly sophisticated fraud, making big profits on the backs of struggling home owners, packaging their soaring mortgage debt as exotic investments some at Goldman knew would fail.

Already, foes of Wall Street reform are picking away at the SEC charges, and whether or not the accusations ultimately will stick remains to be seen — it’s a very complex and nuanced case. The Washington Post reports that the two Republican members of the commission questioned the strength of the case and voted against bringing the complaint, expressing skepticism “that the evidence showed that Goldman had misled its clients because the investors were big, sophisticated firms who should have known what they were doing.”

But the Democratic commissioners and SEC chairwoman Mary Schapiro “argued that Goldman should not escape accountability simply because its clients were big firms. They said the evidence showed that Goldman did not give clients crucial information about the investment that likely would have made them think again about placing a bet.”

The GOP opposition to the SEC’s complaint came just days before federal campaign finance filings were released. In March alone, Goldman Sach’s political action committee donated $167,500 to Republican candidates and fundraising groups and $123,000 to the Democrats. As per the Web site Politico.com, “That March total alone — coming ahead of a major Wall Street reform bill — is more than the firm donated to political campaigns in the previous year.”

A pox on all their houses. So thinks Bill Black, the one-time federal regulator who cracked down on banking during the savings and loan crisis of the 1980s.

Black spoke with my colleague Bill Moyers on “The Bill Moyers Journal” on PBS. He questions whether the SEC and the Obama White House — don’t forget, Goldman Sachs was Obama’s largest corporate campaign contributor — will fully push for answers in the Goldman fraud case or any others.

“Is this administration, which still has some Bush holdovers in it, and now has a lot of Goldman people in it, is this administration going to be able to pass judgment on Goldman Sachs?” he asked.

If Black had his way, he’d enforce a three-strike policy.

“Three-strike laws, you go to prison for life, if you have three felonies,” he said. “How many of these major corporations would still be allowed to exist, if we were to use the three-strike laws, given what they’ve been convicted of in the past?”

That will never happen until the corporate clout of cash is removed from the American way of governance. Bill Black recalled a slogan he and his colleagues invoked during the savings and loan crisis: “The highest return on assets is always a political contribution.”

Maybe that new $100 bill should read, “In Fraud We Trust.”

Messenger Post contributor Michael Winship is senior writer of the weekly public affairs program Bill Moyers Journal, which airs Friday nights on PBS. Check local airtimes or comment at The Moyers Blog at www.pbs.org/moyers.

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